Spain adopting French fibre access model, after trying the German
Spain’s broadband infrastructure is in dire need of massive investment and strong regulatory control. As for DSL, the regulator has thus far shown only moderate success in securing cost-effective access for competitors to Telefónica’s network. The legal provisions have been in place for several years, but Telefónica’s charges for alternative operators’ preferred access option – shared access rather than full LLU – is one of the highest in the EU. The number of unbundled loops remains relatively low in relation to Telefónica’s activated PSTN lines, at around 8.4%, while competitors have concentrated on placing equipment in exchanges in the more densely populated exchanges in urban areas, with the result that they have equipped only about 700 of Telefónica’s 16,400 exchanges.
This state of affairs risks being repeated in the fibre-based network which Spain will depend on in coming decades if the country and economy are to compete effectively within Europe, and globally.
In May 2008 the Spanish regulator, the CMT, took provisional measures for Next Generation Access (NGA), requiring Telefónica to provide access to ducts, supply information on planned civil works and fibre coverage, and deliver an FttH wholesale service (FttH bitstream) to unbundling operators. This followed the French model, but in a revision in the following July the CMT removed the obligation on Telefónica to provide a wholesale service on the grounds that the company’s civil infrastructure access removed the need to adopt provisional FttH bitstream. Telefónica would, however, have wholesale obligations on its VDSL network. In effect, this decision gave Telefónica a regulatory holiday from FttH network access, similar to that secured by Deutsche Telekom in 2007.
Subsequently, Spain’s High Court, the Audiencia Nacional de Espaňa, temporarily overturned the regulator’s ruling, and the regulator itself has since had an about-turn. The latest incarnation in this complex issue will see both Telefónica’s VDSL and FttH networks regulated, but only for data transfer rates of up to 30Mb/s. Telefónica in early October launched the most expensive 30Mb/s service in Europe (at €85 per month). Assuming that Telefónica’s wholesale charges are not unreasonable, competitors can resell 30Mb/s services cheaper and at a profit, while Telefónica can (at present) offer faster services without any wholesale obligation.
In addition, the regulator is currently considering measures similar to those adopted in France during the past few months, principally aimed at cutting engineering costs by obliging operators to share ducts to individual buildings.
The CMT’s original reasoning placed undue faith in Telefónica’s goodwill. Keep in mind that Telefónica has had a number of enforcement proceedings issued against it over the years for failing to fulfil its DSL access obligations. In late 2006 its was fined €20 million for hindering LLU for competitors, in the same year it was charged by the EC for abusing its dominant position in the Spanish broadband market from 2001 and undermining competition by charging wholesale prices so close to retail prices that alternative providers were unable to mount a significant challenge. In July 2007 the EC fined Telefónica €151.9 million for breaking anti-trust laws. The EC hit Telefónica particularly hard (the fine was the second largest yet handed out by the EC) to deter dominant operators in other member states from pursuing similar legally-questionable margin-squeeze strategies.
The regulator has gone some way to providing effective NGA, but given the lack of investment capacity among Telefónica’s competitors to roll out FttH, the 30Mb/s regulatory cut-off risks providing the incumbent with a virtual monopoly on high-end fibre in Spain. There have been calls recently from within the Spanish government for alternative operators to cooperate in building their own fibre infrastructure, yet there would be only three of four contenders in any cooperative enterprise, among them Orange, which has its own pilot FttH project Barcelona and Madrid. Appeals to the private sector to develop fibre networks would see such networks push further into rural areas without the government having to foot the bill. This has had some success in the past, notably by the open access Asturcón network, where ISPs offer a 100Mb/s Internet and VoIP consumer service for €29 per month.
Spain is slowly edging towards a proper open-access fibre environment, but in the short term at least there will be little effective competition to Telefónica except from cablecos, which only market about half of the population. Consequently, Spanish consumers will be lumbered with some of Europe’s highest access charges for some time yet.
Henry Lancaster – Senior Analyst Europe BuddeComm
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October 24th, 2008 at 2:52 pm
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